Invest Like the Best with Patrick O'Shaughnessy Deep Basin – Oil Price War and Its Implications - [Invest Like the Best, EP.160]
Mar 11, 2020
Matt Smith and Kobi Platt from Deep Basin Capital join the discussion, bringing sharp insights into the turbulent oil markets. They delve into the recent price war ignited by Russia and Saudi Arabia, exploring its profound impact on U.S. shale producers and broader equity markets. The duo analyzes supply and demand shocks and the challenges facing energy companies. They also discuss the long-term implications for company valuations, stressing the importance of sustainable cash flow over outdated metrics. Get ready for a riveting exploration of the energy sector's future!
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Knock-on Effects of Production Cuts
- Capital expenditure cuts by companies like Occidental will impact energy service companies and local economies.
- Midstream companies, such as pipeline operators, will also be affected by distressed tenants.
Motivations Behind the Price War
- Russia likely saw the demand drop as an opportunity to recalibrate the market and pressure US shale producers.
- Saudi Arabia has different priorities and needs higher oil prices to achieve its economic and social objectives.
Market Resilience and Interference
- US shale production is more resilient than anticipated, and low prices will need to persist for 3-6 months to affect change.
- Government intervention or a new OPEC+ deal would prolong the oversupply issue.